Texas community banks lobby Congress to curb regulations

Texas’ largest community banking association has prepared a legislative agenda aimed at keeping smaller banks free from much of the regulation handed down by Congress after the financial meltdown.

The Austin-based Independent Bankers Association of Texas, which represents 446 banks of $3 million to $16 billion in assets, wants Congress to regulate smaller banks separately from banks with hundreds of billions of dollars in assets such as Bank of America Corp. and JPMorgan Chase & Co. The association is also fighting to bring regulations on competing credit unions in line with banking rules and hoping to extend Federal Deposit Insurance Corp. guarantees to low-interest accounts over $250,000, among other issues.

In April, a delegation of IBAT members and staff — including several Houston bankers — traveled to Washington, D.C., to let lawmakers know the issues small banks are facing, with the increasing cost of compliance at the top of their list.

“The primary danger we face … is the continued proliferation of regulation coming out of Washington,” said Steve Scurlock, IBAT executive vice president.

To deal with the increasing compliance, smaller banks are merging with larger ones, the association said. Nationally, about 7,200 community banks are operating today versus 8,324 in January 2008, according to Independent Community Bankers of America.

TWO-TIERED SYSTEM

Houston-based Integrity Bank SSB will hire an outside adviser, use two full-time staffers and spend more than $300,000 this year to keep up with compliance requirements.

“And there’s no guarantee that the examiners who come in will feel what we have done is adequate,” said Charles Neff, president and CEO of Integrity, which has $366 million in assets.

“The complexity of the types of credit that we do or the clients that we deal with don’t really justify all the onerous regulations that we’re having to deal with,” he said.

To alleviate some of the pressure, IBAT and ICBA support Congress’ Communities First Act. The House version was introduced by Rep. Blaine Luetkemeyer, R-Mo., and the Senate version was introduced by Sen. Jerry Moran, R-Kan. Both are members of their respective committees on banking and financial services.

The bill would allow regulators to exercise more nuanced control over banks by providing smaller banks with exemptions and more input into the regulatory process.

“The ultimate endgame is to create a two-tiered regulatory system where smaller banks are regulated separately from larger banks,” Scurlock said.

But he isn’t expecting immediate relief for community banks.

“The Communities First Act is a nice vehicle to start the process,” he said. “It’s definitely an uphill fight.”

Another pressing issue is the expiration of the FDIC’s full coverage of low-interest accounts. In the midst of the credit crisis, the FDIC promised full coverage of these accounts — instead of just covering up to $250,000 — to ensure market stability. That coverage is set to expire at the end of the year, and IBAT would like to see it extended another three to five years.

Without FDIC protection, community bankers worry that large account holders will move their money to larger banks.

ADEQUATE CAPITAL

Legislators are aware of the issues IBAT has raised, said Rep. Randy Neugebauer, R-Texas, a member of the House Financial Services Committee.

“What we’ve been working on is trying to mitigate some of the unintended consequences of Dodd-Frank,” Neugebauer said, referring to the Dodd–Frank Wall Street Reform and Consumer Protection Act, which was enacted in 2010 as a means to curtail some of the questionable banking and securities practices that contributed to the financial crisis.

“We’re almost trying to tell the banks how to manage their business,” Neugebauer said. “I think that’s counterproductive.”

Legislators have been participating in hearings and talking with regulators to find better alternatives, he said.

“I think the better way to manage the financial institutions is to make sure they have an adequate amount of capital to do what they are doing,” he said.

Neugebauer cited the recently enacted JOBS Act, which eased various securities regulations in hopes of making it easier for small businesses to raise capital, as a step in the right direction. But he is not optimistic about more progress being made in the current political environment.